Hundreds of thousands saved using debit cards for tax refunds

Thursday

Jun 6, 2013 at 12:01 AMJun 6, 2013 at 6:11 AM

Does it strike you as odd that the state Department of Revenue would send out debit cards to taxpayers for a $2 income tax refund?

RAY HACKETT

Does it strike you as odd that the state Department of Revenue would send out debit cards to taxpayers for a $2 income tax refund?
It shouldn’t. According to DRS Commissioner Kevin Sullivan, it’s no different than in years past where if a refund of say $1.50 was owed to a taxpayer, the department would issue a check for that amount.
“The only other option,” said Sullivan with a laugh, “is we keep the money.” And, he admits, that’s not very likely, even if we’re only talking $1.50 or $2.
The question arose when a friend, Ed Banas, dropped by the house this past weekend with two debit cards he received in the mail and issued by the state Department of Revenue Services, one in his name and the other in his wife’s Sandra’s name.
Apparently there was a minor miscalculation in their income tax filing this year, and they ended up paying slightly more to the state than what they owed — and by slightly, we’re talking $2.
Obviously not expecting any refund, they didn’t choose one of the refund options on the tax forms: Direct deposit, applying the refund to next year’s taxes, or the default option, the debit card.
Ed thought it was silly, not to mention a waste of money, to issue two debit cards for a $2 refund.
But actually, it didn’t cost the state anything. In fact, under the old way when refund checks were issued, the state paid a hefty processing fee, and since making the switch last year, the state is now saving roughly $300,000 a year.
I also learned there’s been other changes since the switch was made. No longer is the taxpayer subject to bank processing fees for using the debt cards.
The funds can be transferred online to the taxpayer’s bank account at no cost.
Food, gas and other goods can be purchased with the card, with no fee.
Cash withdrawals can be made from ATMs, at no cost. But ATMs don’t distribute funds in $1 denominations, so you’ll need more than a $2 refund to use the ATM. But you can go inside any bank associated with VISA and ask for the cash value of the card — and without having to pay a fee.
So, how does Chase Bank make any money on this deal?
According to Sullivan, Chase receives a rather substantial “advance” from the state to cover the outlay of income tax refunds and is able to make short-term investments with those funds, and keeping whatever interest earnings are made.
And obviously, the bank is hoping some taxpayers will open bank accounts with them — but that’s not required, and its unclear how many, if any, have.
According to Sullivan, the biggest problem that he’s had to face recently is angry husbands.
The debit cards carry the full amount of the refund. So, if two cards are issued to joint filers, each card has the full amount on it — and it just depends on who activates their card first.
Ray Hackett is The Bulletin’s editorial page editor. He has more than 25 years covering Connecticut politics. He can be reached at (860) 425-4225 or rhackett@norwichbulletin.com.